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Walmart to Ramp Up Capital Expenditures

e-commerce prioritized over physical locations

October 16, 2014, 02:18 pm

Small-format Walmart Express stores will be rebranded as Neighborhood Markets

At its annual meeting for the investment community, Wal-Mart Stores Inc. projected total capital spending for fiscal 2016 to range between $11.6 billion and $12.9 billion, including about $1.2 billion to $1.5 billion for e-commerce and digital initiatives.

"We'll change the mix of our capital spend next year to provide greater access, while continuing to focus on price leadership, service, and a broad assortment," noted President and CEO Doug McMillon, who outlined the mega-retailer's growth strategy at the same event.

'Endless Aisle'

"Our business and customers continue to evolve and so will the way we deploy capital," added Charles Holley, Walmart's EVP and CFO. "We will invest more heavily in e-commerce initiatives, while temporarily moderating our global physical growth, particularly larger stores. We are focused on creating an endless aisle and appealing to our customers’ changing needs."

Continued Holley: "Globally, we expect to finish this year with approximately $12.5 billion in e-commerce sales. Looking forward, we expect an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and we anticipate growth over the three-year period from fiscal years 2016 through 2018 to average 30 percent to 40 percent."

Further, according to the finance executive, "The greatest investment of capital and in operating loss for our e-commerce operations will come over the next 18 to 24 months, and then we would expect to see that investment start to moderate in fiscal 2018."

Overall, Walmart expects to spend capital of approximately $1 billion for e-commerce and digital initiatives this fiscal year, and between $1.2 billion and $1.5 billion next year, "and these investments will include technology, infrastructure and other areas," noted Holley

More Square Footage, Fewer Stores

In fiscal 2016, the company plans to add between 26 million and 30 million net retail square feet, reflecting moderation of new store openings across its segments. Net retail square footage growth also includes conversion of Walmart discount stores to supercenters.

As a result of the timing of certain planned small-format openings, Walmart U.S. now expects to open around 240 small-format units in fiscal 2015, and carry more than about 20 units into fiscal 2016. The company additionally noted that during the testing of its Walmart Express format, it found that customers depended on these stores for various reasons, including grocery fill-in trips, last-minute dinner plans and picking up prescriptions, closely aligning with how customers shop the Neighborhood Market format. Therefore, the company has decided to rebrand Walmart Express as Neighborhood Market and employ this banner for all small-format stores, regardless of square footage.

"We know that our supercenters are an important format for the stock-up trip, but we want to be thoughtful about our investment, ensuring that we align the space to evolving customer needs," observed Walmart U.S. President and CEO Greg Foran. "To do this, we will moderate supercenter growth in fiscal 2016. Our investment in Neighborhood Markets will go forward because they continue to show strong results across the box and they provide our customers with convenient access to grocery, pharmacy services and other quick-trip needs."

Walmart U.S.'s fiscal 2016 capital investments are projected to range between $6.1 billion and $6.6 billion, including new stores, remodels, conversions, relocations, logistics, e-commerce and technology infrastructure, and reflecting the additions of new units that will expand the division's retail space by about 15 million to 16 million net retail square feet. The company plans to open between 60 and 70 supercenters and 200 to 220 Neighborhood Markets.